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Cash returns – lower for longer environment presents challenges

Given the low interest rate environment, it is important to consider the long-term impact to your retirement goals of investing a large portion of your savings in a Cash option.

Current environment and outlook

Central banks have been lowering interest rates for years to drive economic growth and fuel inflation. A significant shift in the global interest rate environment has taken place since March 2020, as central banks implemented supportive policies in response to the COVID-19 outbreak.

Locally, the Reserve Bank of Australia’s (RBA) response included lowering the overnight cash rate target from 0.25% to 0.10% on 3 November. This is an all-time low (see chart). The RBA Governor has publicly stated that the cash rate is likely to remain at these lows for a prolonged period, hence the new market phrase ‘lower for longer’.


RBA cash rate


The RBA also established a new $200bn Term Funding Facility (TFF) to support Australian banks given the COVID-19 outbreak, which rapidly diminished the need for wholesale investors (such as Aware Super) as a source of funding.

These policies are expected to be in place until at least the second half of 2021 and are realistically anticipated to be in place for years to come.


The current environment means we are investing in an extremely low yielding environment where ample liquidity is provided directly by the RBA, reducing the demand for institutional providers of liquidity like superannuation cash funds. Looking forward, the risk to superannuation cash fund returns are almost entirely to the downside. This is because:

  • banks continue to cut margins (the rate of return) on term deposits
  • cash investments are now being reinvested into securities with lower yields (interest rates).

Returns for our single-asset class Cash option will continue to be extremely challenged with a very real possibility of negative returns after all fees.

The headline RBA rate (currently 0.25%) is not what institutions receive as the cash return. Currently, the combined effect of the RBA's various stimulatory policies is keeping cash returns well below the overnight benchmark rate.

VicSuper Cash option

For our Cash option, we focus on delivering capital preservation and liquidity. Cash as an asset class is considered an income allocation and does not have a growth objective.

Although Cash has the lowest market risk, in the current low-rate environment your returns after fees may be negative. This means that you may see your retirement savings reducing, instead of growing or providing a reliable source of income.

This may also leave your retirement savings susceptible to inflation risk, meaning that your return is lower than the rate of inflation causing the purchasing power of your money to decline over time.

What is VicSuper doing to manage member outcomes?

Cash as an investment is tightly regulated and this limits what we can invest in for the portfolio. Cash refers to interest rate securities with a maturity date of less than 12 months including:

  • bank deposits (term and call)
  • discount securities (Treasury Bills, Negotiable Certificates of Deposit & Corporate Paper)

We aim to keep investment fees on the Cash investment option as low as possible. The Cash investment option is managed internally by our specialist investment team, so we are not paying external manager fees simply to manage cash.

Even in volatile market conditions and times of market downfalls or low interest rate environments, the costs to operate and run a superannuation fund, including regulatory costs, do not go away. We are still required to administer and operate the fund effectively to meet member needs.

As a large fund, we aim to keep our fees and costs as low as possible and use our size and scale to negotiate competitive rates with our outsourced investment providers, including those who provide administrative or custodial services. As an example of this, we have recently been able to deliver cost savings by lowering our administration fee for our retirement members.

Important information regarding your Cash investment option

For members who have invested in the Cash option, in the coming days, you will receive important information about recent changes to interest rates and how this may affect your retirement savings.

What should I do?

Reading the above could be unsettling and may make you reconsider your investment option decision. It is important to remember your long-term retirement goals when making any decisions about switching investment options.

VicSuper offers a number of options that may suit your retirement goals. Diversification, the spreading of your investments across asset classes, reduces your exposure to investment risks specific to a single asset type.

Our Diversified investment options, although also having an allocation to Cash, are positioned to deliver on their CPI+ objectives through return contributions sourced from many asset classes. You can read more about our investment options and in our Member Booklets or Product Disclosure Statements.

You can discuss your retirement goals with an adviser to determine the best option to meet your outcomes. Book your advice appointment or call us on 1300 366 216.

Got any questions?

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